Current Operations

Market

Demand for flexible electricity generation is underpinned by structural changes to the UK’s power generation mix, which is experiencing an increasing proportion of intermittent, renewable power as legacy fossil capacity is retired.

Characteristics of the UK energy market

Increasing volatility

Renewable power generation has grown in the UK from 3% of energy supply in 2000 to currently more than 20%. With the ongoing retirement of high carbon sources of generation, this proportion is set to increase to more than 30% (see the graph below). The Government has committed to closing all coal-fired power stations by 2025, while new gas and nuclear generation is at least 10 to 15 years from coming online.

As the UK’s power generation mix shifts away from fossil fuels and becomes increasingly reliant on renewable sources, energy supply becomes more irregular: wind is an intermittent source, while solar energy is generated predominantly in the summer months, when least required. Balancing supply and demand is consequently an increasingly challenging, yet vital component of the energy supply market.

Tight capacity margins

The UK energy market is experiencing reduced capacity margins, i.e. the difference between peak electricity demand and the capacity available to meet this. For last winter, National Grid had forecast a buffer of just 6%, equivalent to 3GW, although the mild weather alleviated any operational pressure on the system. Operating challenges are expected to increase in the UK nuclear industry. Continuing high renewable deployments, the planned closure of coal generation and the aging condition of a substantial part of the UK nuclear industry all contribute to the UK nuclear industry challenges.

Increasing need for balancing services

The system operator, National Grid, is responsible for ensuring that the UK electricity system has sufficient supply to match demand. Since power cannot readily be stored in sufficient quantities as yet, matching must be done in real time. Small imbalances in supply and demand lead to frequency distortions, which are critical for many technologies connected to the system. Larger imbalances may lead to brownouts and blackouts.

National Grid classifies the capacity it makes available to address imbalances into four categories

Contingency reserve or margin

Short-term operating reserve (STOR)

Regulated (or fast) reserve

Low frequency response

National Grid has also requested notifications of interest in a new service called Enhanced Frequency Response, for very rapid response such as could be provided by battery storage units. Battery storage remains markedly higher cost than other short-term generation solutions and has technological limitations. As a result, this new market is thought likely to complement, rather than remove demand from existing frequency response markets.

In addition, energy balancing, using existing capacity in the main balancing market and involving demand reduction, also takes place across all time zones, although is used particularly in the 20 minutes ahead of the demand point.

Drivers of demand for flexible power generation

In the context of the fundamental changes to the UK energy sector outlined above and the resulting challenges, flexible power generation plays a vital role in supporting the pillars of the UK’s energy strategy.

Flexible generation sites support UK energy imperatives

Keeping the lights on

Network support

Improve operational capability by lowering demands on the network

Support the distribution system and provide an important tool to accommodate intermittency of renewable sources

Frequency control

Maintain system frequency within operating parameters by generating very quickly, supporting local balancing

System inertia improvement

Lower the risk of failure by increasing the inertia on the system

Short run back up capacity

Add small scale capacity that can run when larger assets fail

Affordable

Best possible value to the consumer

Derive all revenue through market-delivered processes

Reduce connection costs by sharing Grid connections with solar

Low Carbon

Providing a system that allows the wider decarbonisation of energy

In contrast to large power stations, which connect to the high voltage transmission grid, most flexible generating assets connect directly to regional distribution networks. Such power generation is known as embedded generation, and enjoys several advantages that result in lower bills for consumers, as well as generators earning a premium over wholesale electricity prices. The benefits derive from three sources:

Reduced charges: While embedded generation must pay local distribution network fees, it avoids charges relating to transmission use, distribution system use and system balancing. Embedded generation also reduces the need for investment in the transmission and distribution networks, and saves costs associated with operating and maintaining existing infrastructure

Reduced thermal losses;

Reduced regulation: embedded generation is not subject to regulatory burdens such as the Carbon Price Floor and Climate Change Levy

Finally, embedded generation generally reduces the volume from balancing energy and hence can reduce the cost of balancing the system on a half hourly basis. Controllable plants such as generators also facilitate management of intermittency at a local level, allowing greater deployment of intermittent assets than would otherwise be viable.

The operational benefits and cost efficiencies in the form of avoided charges are typically shared between suppliers and the local producers they contract with, and ultimately benefit consumers through reduced energy bills.